Offshore Drilling Giant Seadrill Files For Bankruptcy

Seadrill Ltd., the London-based offshore driller controlled by billionaire Norwegian shipping magnate John Fredriksen, filed bankruptcy protection in the Southern District of Texas after working out a deal with most of its senior lenders to inject $1 billion of new money into the company pursuant to a pre-arranged plan of reorganization. The filing was largely expected and came just a couple of days before the company's $843 million 5.625% Notes of 2017 came due.

According to Bloomberg, Fredriksen spent more than 18 months trying to strike an agreement with creditors to restructure the industry’s biggest debt-load after crude’s collapse curbed demand for Seadrill’s services. Daily leases for the company’s rigs, which once commanded up to $800,000, have dropped to around $200,000 as cheap oil from U.S. shale drilling continues to flood the market.

“The deal gives us a great liquidity cushion,” allowing Seadrill to survive the “mother of all downturns,” Chief Executive Officer Anton Dibowitz said by phone. The new capital is “underpinned” by top shareholder Hemen Holding Ltd. and more than 40 percent of bondholders support the plan along with 97 percent of Seadrill’s secured bank lenders, he said. Dibowitz expects more bondholders to sign up to the deal.

Bondholders are currently predicting their ultimate recovery is worth about 25 cents on the dollar as of today.

Of course, Seadrill is just the latest bankruptcy filing in an industry that has been devastated by persistently weak commodity prices.

In late July, Ocean Rig UDW Inc. filed for bankruptcy protection in the U.S. Hercules Offshore Inc., GulfMark Offshore Inc., Toisa Ltd. and Vantage Drilling Co. have also spent time in bankruptcy court since oil and gas prices cratered.

Paragon Offshore PLC emerged from Chapter 11 in August but was forced back into bankruptcy after it was unable to transfer two rigs to its reorganized entity. Its successor, Paragon Offshore Ltd., isn’t under bankruptcy protection and was unaffected by Paragon Offshore PLC’s new filing.

Under the proposal, lenders will extend the maturity on $5.7 billion in debt, with no amortization payments due until 2020. Meanwhile, the company will get a new $1 billion capital injection which will come in the form of $860 million in secured notes and $200 million in equity. If bondholders ultimately sign on to the current deal, they would be converted into a 15% pro forma ownership stake in the restructured company. Here is a brief recap of the reorg plan from Seadrill's presentation:

After the restructuring is complete, Seadrill's capital structure should look something like this:

Meanwhile, some very expensive lawyers at Kirkland and Ellis are predicting that the whole process should be complete by next summer.

And, here are the obligatory "hockey-stick" financials that accompany most bankruptcy disclosure statements..."everything should be awesome" again in just a couple of years.

Finally, here is a list of the advisors who will be leeching millions in fees from the bankruptcy estate throughout the process.

The Company has engaged Kirkland & Ellis LLP as legal counsel, Houlihan Lokey, Inc. as financial advisor, and Alvarez & Marsal as restructuring advisor. Slaughter and May has been engaged as corporate counsel, and Morgan Stanley served as co-financial advisor during the negotiation of the restructuring agreement. Advokatfirmaet Thommessen AS is serving as Norwegian counsel. Conyers Dill & Pearman is serving as Bermuda counsel.

As always, we very much look forward to reviewing future expense reports from these folks throughout the bankruptcy process.